It does not matter if your consulting business is active in the field of a marketing agency, management consultancy, or architectural firm. It is just half of the job to provide consulting services, as the other half is to send out meticulous invoices, collect payments monthly, and perform excellent bookkeeping tasks in your business.
If you neglect the integral importance of bookkeeping for consultants, you may easily lose the profitability of your consulting business in a flash. Your company may quickly sink before it has the chance to grow. That is why it is crucial to perform high-quality bookkeeping in your business to avoid any unpredicted loss and cope with the tax returns the best way possible.
The very first step is to find out why bookkeeping is necessary. Although bookkeeping may not be an enjoyable task for a consultant, it is vital for the profitability of your consulting business. Proper bookkeeping will eventually allow you to measure the financial performance and well-being of your business. It helps you manage your clients better and make strategic financial decisions more smartly.
Smart bookkeeping is integral to managing your cash flow. You will ensure that your expenses are recorded accurately and income values are maintained and repeated. Not only does healthy bookkeeping helps you estimate the current health of your consulting business, but it also lets you see patterns and make comparisons with previous years by looking back.
It is critical to allocate time to the projects and clients that are more worth it than others. You should be cautious to manage your time between billable and non-billable tasks wisely and prioritize the tasks that are more important to your consulting business for any reason. If you track your time properly, you will be able to use historical data to correctly estimate how much a consulting project will cost.
Tracking both billable and non-billable project hours according to your available time will allow you to find out the real cost of a project, estimate its profitability, and whether you can raise your billing. Some examples of non-billable tasks in a consulting project include doing research,
communicating with the client, and brainstorming. Although these tasks are non-billable, you have to do them during a managed time to turn them into profitability.
Another benefit of tracking your time is that you can find out how many hours of labor have gone into a specific task. Also, this helps you make the most of your time and human resources, and avoid overruns. Additionally, this enables you to make adjustments if required.
Paying for taxes is one of the most significant parts of the business for consultants. You need to be preparing for taxes throughout the year, not just during tax season. A rule of thumb state that consultants should set aside at least 15 percent of their revenue monthly for tax. It is also suggested that they contact their tax preparer to find out if that amount of savings is enough for tax season.
Bookkeepers of consulting businesses should exactly remember the tax deadline to avoid possible penalties. A good approach is to set reminders for every essential deadline, so you can stay up to date. You can add tax return due dates and other reminders to your calendar to make sure you will never miss any upcoming due date.
Additionally, experts advise that consultants keep their accounts in formats that IRS accepts. IRS does not accept credit cards or bank statements alone for auditing; they need receipts too. Therefore, consultants should always keep their recipes scanned for tax season.
Another vital step in bookkeeping for consultants is to keep the physical evidence of all financial transactions. This can hugely simplify the process of bookkeeping. Keeping track of every transaction will enable you to enhance accuracy and avoid any possible errors. These documents can include bills, invoices, purchase orders, credit card receipts, etc.
When you have all of the documents by your side, it is a piece of cake to close the books at the end of the month. A highly detailed and backed-up set of documents can help you prevent fraud, spot essential budgeting mistakes, detect missing transactions, and provide the IRS with your complete list of transactions in the case of any problem.
If you are a fan of keeping paper records, you need to store them in a secure and safe place such as your locked filing cabinet. Make sure to organize your paper bookkeeping records properly using various labels and sorting strategies to be able to find them later with ease. Otherwise, if you are not a fan of paper records, you can go electronic instead and automate your tasks for the good. This is covered in more detail later in this post.
It is not always possible to forecast the expenses to come. You can anticipate some expenses, while others may happen unexpectedly. Despite that, if you plan and prepare for unexpected situations, your consulting business will be able to perform much better in the long run.
That is why you certainly need to keep a record of all your expenses including your supplies, inventory, insurance, utilities, and everything else. This way, you can find out the exact amount of money you need to spend for the individual tasks on a monthly and even yearly basis. Then, it is just enough to have a game plan beforehand to effectively cope with all the unforeseen expenses.
Experts recommend automating your bookkeeping and accounting tasks in your consulting business. It is best to use a cloud-based bookkeeping service. This way you can access your financial information from everywhere in the world. Your bookkeeper or accountant can see your information in real-time. Bookkeeping services and accounting software are usually able to handle cashbooks, perform bank reconciliation, secure and backup your information, etc.
For this purpose, Less Accounting offers a done-for-you bookkeeping service that improves the profitability of your consulting business. You will be able to estimate your expenses and incomes, keep a history of every transaction, manage your purchases, and perform countless other bookkeeping tasks.
Apart from the bookkeeping service, Less Accounting also provides self-service accounting software that offers a complete list of accounting tools consultants may need in their business, and even more.